Uniti Group Inc (UNIT): A Deep Dive into Its Performance Potential
Long-established in the REITs industry, Uniti Group Inc (NASDAQ:UNIT) has enjoyed a stellar reputation. However, it has recently witnessed a decline of 8.3%, juxtaposed with a three-month change of 19.95%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Uniti Group Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
1. Financial strength rank: 2/10
2. Profitability rank: 6/10
3. Growth rank: 2/10
4. GF Value rank: 8/10
5. Momentum rank: 5/10
Based on the above method, GuruFocus assigned Uniti Group Inc the GF Score of 65 out of 100, which signals poor future outperformance potential.
Uniti Group Inc: A Snapshot of the Business
Uniti Group Inc, with a market cap of $1.17 billion and sales of $1.14 billion, is a REIT with about 135,000 route miles of fiber in the U.S., primarily in the Southeast. The company reports its business in two segments: leasing and fiber. Leasing currently makes up about 75% of total revenue and consists mostly of Uniti's master lease agreement with Windstream. Other leasing revenue stems from sale-leaseback transactions with other fiber holders. Uniti generates fiber revenue by leasing dark and lit fiber to wireless carriers and other enterprises. The company's operating margin stands at 51.71%.
Financial Strength Analysis
Uniti Group Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 1.32 positions it worse than 84.64% of 638 companies in the REITs industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Score is just -0.82, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.01 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 8.99, which is above Joel Tillinghast's warning level of 4 and is worse than 60.69% of 552 companies in the REITs industry.
Growth Prospects
A lack of significant growth is another area where Uniti Group Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -5.3 per year over the past three years, which underperforms worse than 77.09% of 633 companies in the REITs industry. Over the past five years, Uniti Group Inc has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -14.6, while the five-year growth rate is at -14.4.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Uniti Group Inc has a strong reputation in the REITs industry, its current financial indicators and growth prospects suggest that it may struggle to maintain its historical performance. As value investors, it's crucial to consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
